1. W. Frank Dell II, CMC DELLMART & Company

2. DELLMART & COMPANY2 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

3. DELLMART & COMPANY3 Objectives Introduce PLMA Net Profit Model Explain Activity Based Costing Explore model applications

4. DELLMART & COMPANY4 Current State Category Management gaining acceptance –Most not true to concept –Result - Super Buyer not marketer Brand manufacturers claim leadership –Buying leadership Private Label losing voice

5. DELLMART & COMPANY5 Why Net Profit? Gross Margin ineffective management tool Simple relationship - cost Vs retail price Not a predictor of profit

6. DELLMART & COMPANY6 What is Net Profit? Sales - Cost of Goods Sold = Gross Margin + Direct Revenue - ABC Costs = Net Profit

7. DELLMART & COMPANY7 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

8. DELLMART & COMPANY8 Definition ABC is a cost allocation or assignment methodology Cost assignment based on: –Activities - Tasks within a process –Drivers - Factors creating costs

9. DELLMART & COMPANY9 ABC Vs DPP

10. DELLMART & COMPANY10 Allocates All Costs Headquarters –Management –Merchandising –Finance & Accounting –Human Resources Warehouse –Management –Labor –Benefits –Space –Utilities Transportation –Labor –Equipment –Supplies Stores –Management –Labor –Benefits –Space –Utilities

11. DELLMART & COMPANY11 Primary Processes

12. DELLMART & COMPANY12 Costs Follow Product Flow

13. DELLMART & COMPANY13 Greatest Cost is Display Space Display Square Feet

14. DELLMART & COMPANY14 Cost and Drivers

15. DELLMART & COMPANY15 Cost and Drivers (Cont.)

16. DELLMART & COMPANY16 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

17. DELLMART & COMPANY17 Start PLMA Model

18. DELLMART & COMPANY18 Enable Macro

19. DELLMART & COMPANY19 Navigation Buttons

20. DELLMART & COMPANY20 Input Data Screen

21. DELLMART & COMPANY21 Input - General Item Description - Identification Units Per Week - Average per store Retail Per Unit - Normal, Promotion or Average

22. DELLMART & COMPANY22 Input - Case Cost - Normal, Promotion or Average Pack - Units per case Dimensions - Height, Length, Width (inches) Weight - Pounds

23. DELLMART & COMPANY23 Input - Store Facings - Unit presentation at shelf level Shelf Height - Bottom to Top inches

24. DELLMART & COMPANY24 Input - Payment Terms Discount - Percent Days - Number

25. DELLMART & COMPANY25 Input - Per Case Billback - Dollars per case Backhaul - Dollars per case (Pick Up)

26. DELLMART & COMPANY26 Input - Delivery 1 - Distribution Center 2 - Direct Store Delivery 3 - Drop Ship 4 - Percent mark-up

27. DELLMART & COMPANY27 Optional Input Screen

28. DELLMART & COMPANY28 Optional Input - Labor Store direct labor rate and benefits percent Distribution direct labor rate and benefits percent

29. DELLMART & COMPANY29 Optional Input - Customer Annual interest rate Number of stores in chain Distribution mark-up percent

30. DELLMART & COMPANY30 Results Screen

31. DELLMART & COMPANY31 Results - Dollars Sales - Revenue per week Gross Margin per week Net Profit per week

32. DELLMART & COMPANY32 Results - Per Unit and Percent Net Profit per Unit Net Profit per Display Square Feet Gross Margin Percent Net Profit Percent

33. DELLMART & COMPANY33 Results - Activity Based Costs Direct Revenue per week Activity Based Costs –Headquarter –Distribution & Transportation –Store

34. DELLMART & COMPANY34 Model Tips Develop, load and save standard data Collect and load customer data Copy and paste data set for comparison Limit analysis to pertinent items Be reasonable and conservative in assumptions

35. DELLMART & COMPANY35 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

36. DELLMART & COMPANY36 Success Factors Logical presentation Reasonable assumptions Demonstrate knowledge of business Promote benefits –Consumer sales –Customer profits

37. DELLMART & COMPANY37 New Products Life blood for retailers and suppliers Primary driver of growth Replacement Vs Cannibalization Strategy

38. DELLMART & COMPANY38 Approach Select items for replacement –Low sales –Matching consumer target markets Collect customer and competitive data Run model Present –Current sales and net profit –Projected sales and net profit

39. DELLMART & COMPANY39 Retail Space Most coveted merchandise element Interacts with pricing Shelf space is greatest item cost

40. DELLMART & COMPANY40 Balance Space Too Little Consumer can’t find Reduced sales Lost sales Too Much Lower profits

41. DELLMART & COMPANY41 Diminishing Returns Excess space does not increase sales Minimum - Case plus order cycle –Minimizes stocking labor

42. DELLMART & COMPANY42 Approach Determine minimum units and facings Identify net profit Test & evaluate alternatives –Increase unit sales –Increase facings Present –Current sales and net profit –Projected sales and net profit

43. DELLMART & COMPANY43 Retail Pricing Price discussions should not be taboo Price too high –Lost sales Price too low –Lost sales –Lost profit

44. DELLMART & COMPANY44 Retailer Goals Low Price Image Gross Margin Quality Ratio High

45. DELLMART & COMPANY45 Consumers Recall up to 200 item prices Frequently purchased items High consumables Translates to 500 - 1,000 items creating store’s price image

46. DELLMART & COMPANY46 Low Retail Not The Answer

47. DELLMART & COMPANY47 Value is King Value = Price Quality

48. DELLMART & COMPANY48 Approach Compare product quality Load model Test & evaluate alternatives –Change retail price –Hold constant and change unit sales Present –Current sales and net profit –Projected sales and net profit

49. DELLMART & COMPANY49 Promotions Most frequently used promotion tool –Advertising –Display –Price reduction Private Label under- represented –Accrual funds –Lack targeted program

50. DELLMART & COMPANY50 Why Promote? Create merchandising excitement Attract customer Foster consumer trial Load pantry Reward loyal consumers Present value proposition

51. DELLMART & COMPANY51 Promotions are Difficult

52. DELLMART & COMPANY52 Many Promotional Factors

53. DELLMART & COMPANY53 Research Question

54. DELLMART & COMPANY54 Low Private Label Share

55. DELLMART & COMPANY55 Moderate Private Label Share

56. DELLMART & COMPANY56 Promotional Index

57. DELLMART & COMPANY57 Promotion Conclusion Low Private Label share Moderate Private Label share Private Label Natl. Brand

58. DELLMART & COMPANY58 Approach Research past promotions Load model Test & evaluate alternatives –Change price –Change index Present –Current sales and net profit –Projected sales and net profit

59. DELLMART & COMPANY59 Summary Net Profit is the ultimate sales tool PLMA Net Profit Model –Easy to use –Provides great flexibility –Great learning tool Coach customer to increase profits

60. DELLMART & COMPANY60 W. Frank Dell II, CMC President DELLMART & Company 125 Hardesty Road Stamford, CT 06903 Tel: 203-968-8609 Fax: 203-968-8613 e-mail Wfdell2@msn.com Thank You